26 July 2016

On 20 July, the FCA published Feedback Statement on Call for Input 16/4: Supporting the development and adopters of RegTech and its intended approach to RegTech in 2016/17. This follows a Call for Input of the same name that garnered more than 350 responses and four Roundtable discussions (including a RegTech Roundtable hosted by Burges Salmon) where attendees raised a number of general themes.

From the metrics provided in the Feedback Statement, it is clear that RegTech is an important issue both for authorised firms and for the tech developers looking to provide solutions – there was broad interest from the full spectrum of financial services stakeholders with significant engagement at senior or Board level, who made up 60 per cent of respondents through written responses, roundtables and bilateral meetings.

Looking for effective outcomes

Seeking the Holy Grail, the FCA's laudable aim is to improve effective compliance, regulatory oversight and to reduce the cost of regulation, both for itself as a regulator, and for the firms which it regulates. The Feedback Statement reflects a view that the development and adoption of RegTech solutions could help.

In delivering this outcome, the pragmatic FCA seeks to achieve the difficult balance between its objectives of enabling innovation and competition, and access to the benefits of RegTech and Fintech, whilst concurrently maintaining its primary objective as a regulator; consumer protection.

The journey of a thousand miles starts…

The FCA has already shown itself willing to invest in FinTech and RegTech in order to nurture the UK’s financial services industry. Not least through its Regulatory Sandbox, a product of “Project Innovate”, as well as running its TechSprint hackathon. It pictures itself as a “catalyst” for industry players to work together in exploiting the potential of RegTech and applying it to common regulatory and technological challenges. This addresses key themes raised at the Burges Salmon Roundtable which included calls for the FCA to engage with and adopt technology to develop compliance solutions and improve the experience of regulated firms.

No kitemarking, but standards and good practice

A recurring suggestion made at the Roundtable and throughout the financial services sector is for the FCA to provide greater clarity on its own rules and guidance. The FCA indicated that it is investigating means of improving its technology standards and guidance, through consultation with financial services and standard-setting bodies. There is also a clear recognition that part of its role in supporting RegTech is to define standards and guidelines to provide certainty to firms developing technology solutions in this area.

This response goes some way to answering the recurring theme of clarifying what constitutes "good practice” that was voiced by Roundtable participants. Whilst the FCA is unable to satisfy the calls for specific RegTech solutions to be "kitemarked", certified or promoted, due to the conflict this would pose to its overarching competition objectives, it is possible that this issue might be addressed through alternative means in the future. From our discussions with the FCA, we understand that they are currently working with interested parties such as the British Standards Institute to create recognised standards for RegTech solutions, which would demonstrate a level of compliance that authorised firms (and regulators) can trust. 

With Brexit still working away in the background, it is also encouraging to see that one of the FCA's outcomes from this Call for Input is to engage internationally and provide access to foreign markets, with the aim of ensuring that UK Fintechs can export and access the best available technologies, whilst ensuring that UK firms receive the best solutions from beyond our shores.

The FCA’s role

The Feedback Statement also reflects the demand for the FCA to engage with technology itself, foreseeing the FCA’s position as "fully engaged with the FinTech community”, and acknowledging that collaboration will benefit both the development of RegTech itself and the relationship between the regulator and the firms it regulates.

Equally however, the FCA also recognises the limitations to its role in this capacity and is alive to the extent to which it may impact and influence progress. It points out that there is more to the proliferation of RegTech than the mere development of these technologies, and that their implementation (given the scale and diversity of the legacy structure in place at financial services firms) means that certain challenges to innovation and the progress of RegTech is simply beyond the FCA’s control. After its successful TechSprint event earlier this year, Christopher Woolard, Director of Strategy and Competition for the FCA explained that “many of the problems that we are trying to address are deep rooted, and have multiple causes”, acknowledging that the FCA's resolve to facilitate the adoption of RegTech by financial services, is a plan that spans beyond a two day hackathon. That is not to undermine the value of TechSprint, however – our conversations with the FCA highlighted the importance of such events as efficient and insightful exercises that can quickly determine the credibility and potential of RegTech solutions, and help these scale successfully.

This notion that problems are heavily ingrained within the current system was certainly reflected at the JWG RegTech Conference, where Adrian Shedden co-hosted the Conduct Roundtable. There was a clear sense that conduct is driven by culture and that increasing the uptake of RegTech within financial institutions will require significant cultural change from the top down. The next generation of consumers and business leaders take tech for granted and have different drivers to the incumbent senior managers. So it would be wise to consider reverse engineering strong management for the digital century through TechSprints, hackathons, roundtables and any other collaborations that bring the Reg, Tech and FS communities together. And that, it seems to us, is what the FCA is leading the charge on.

If you would like further insight into this Call for Input or advice generally in respect of the provision/adoption of RegTech solutions please contact Adrian Shedden in the first instance, or your usual Burges Salmon lawyer.

This article was co-authored by Adrian Shedden and Daniel Hogg.

Key contact

Tom Dunn

Tom Dunn Partner

  • Head of Regulated Funds and Financial Services
  • Regulated Funds
  • Financial Services

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